EUR 850.00 For Business Accounts Only

Morningstar | AGESY Updated Forecasts and Estimates from 17 May 2019

Ageas reported net profit of EUR 250 million for the first quarter of 2019. This brings the full-year estimate pretty much in line with our full-year expectation. The business is made up of four divisions and their performance has all been very average; the financials show a business that is under a lot of pressure. We maintain our EUR 42 fair value estimate and no-moat rating.

In Belgium, the business is suffering, and this is pretty much across the board. For example, the net result attributable to shareholders came in at EUR 68.5 million for the life business versus EUR 118.5 million in the previous year. Things aren’t a lot better in the nonlife part of this division. Net profit attributable to shareholders here came in at EUR 12.0 million versus EUR 17.5 million a year prior. This continues to be a volume-over-value story that we see in liabilities and net flows. Inflows in life almost doubled to EUR 1.4 billion, and we think this has been used to offset the almost halving of margins across both traditional and unit-linked to 78 and 26 basis points, respectively. The combined ratio for nonlife doesn’t look any better at 104.0%, leading to an underwriting loss.

This is a poor showing for Ageas' core market. At the moment, the one thing we can hope for is that the business is building stock before it starts to raise rates. These results stand in contrast to our long-term forecasts of 85-100 basis points of operating profit on guaranteed business and 40-45 basis points on unit-linked. Our estimates are that net flows would grow modestly and profitably at 300 basis points.

The U.K. business looks rough. While management conveyed a better underwriting result in all lines of business, this quarter's performance makes 2018 look like an anomaly. The net result of EUR 10.5 million implies a full-year result of something in the region of EUR 42.0 million. It looks to us that the only place this business can really make money is in U.K. motor, and even there we are very sceptical.

The continental Europe business is probably one of the few slightly bright spots in these results, but this is limited to nonlife insurance. Life turned in a flat net result to shareholders of EUR 12.5 million. This is on operating margins of 140 and 8 basis points for traditional and unit-linked versus our forecasts of 139 and 21 basis points, which shows we are off in the unit-linked portion. Though we are maintaining our long-term estimates, we have tinkered with our near-term unit-linked margins in a buildup from 10 basis points to 20 in the medium term, three years. We think one of the main unit-linked problems continues to be Portugal. This part of the business needs some serious management attention.

The nonlife continental Europe net result improved to EUR 19.5 million, up around EUR 5.0 million, though there is a deterioration in underwriting and so this is again a volume-over-value story. Gross inflows in nonlife increased 10 percentage points. This volume narrative is also present in the life liabilities.

The net result for Asia looks better; this is predominantly a life business. Though the division provides no insight into profitability here because of the heavy reliance on nonconsolidated partnerships, life stock is up by around 15%, and by our very rough calculations, this is something like a 1-basis-point margin improvement.